Subcontractor fails in Costs Plus (do and charge) Claim

08/08/2018

There is an industry of Builders who undertake emergency work; for example after a storm causing damage to property either by direct contact or through flood. There are numerous building companies who undertake this work for owners or insurers. The Head Contractors often subcontract part of the works to subcontractors to undertake part of the works.

Most often the initial work to protect the building is undertaken on a “do and charge” basis.

Where the work relates to residential building work the Home Building Act still applies.

Recently there has been a change to the Home Building Act which now provides that progress claims for residential building work under a Contract essentially on a “do and charge” basis (or costs plus) requires that the person making the claim must annex to the claim invoices, receipts and other documents as may be reasonably necessary to support the claim. The Home Building Act prohibits a person demanding payment or entering into a Contract entitling payment without compliance with this section (Section 8A of the Home Building Act).

Unfortunately many Builders and subcontractors when making a claim fail to comply with this obligation and simply issue Invoices for the amount claimed without any supporting documentation. Most often the claims are paid by the owner to the Head Contractor or the Head Contractor to the subcontractor even though the claim is not made in accordance with Section 8A of the Home Building Act. By some it is viewed that it would be bad business not to pay the Head Contractor or the subcontractor.

Recently in 2018 we received instructions from a Builder who had been engaged to undertake roof repairs following a storm in Sydney.

The Builder subcontracted this work to one of its usual subcontractors who undertook the works. The basis was a “do and charge” basis. The subcontractor issued invoices which were paid by the Builder. Issues arose when further invoices were issued; it became apparent to the Builder that the subcontractor’s claims were excessive.

The Builder produced an “audit” setting out what it believed was the appropriate sum claimable by the subcontractor and ascertained that the subcontractor had been overpaid.

The subcontractor had not complied with the requirements of either the Contract or the Home Building Act and failed to provide supporting evidence to support its claim.

Notwithstanding the subcontractor instructed Solicitors then issued proceedings against the Building out of the NSW Civil and Administrative Tribunal (NCAT) claiming a significant amount for claimed moneys due to the subcontractor.

In this particular case there were further investigations and we could establish that part of the claim was “completely false”. In this day and age one can prove the true facts much easier than in the past when there was not as much technology available. In this particular case, we utilised “technology” to establish that one of the particular facts and amounts claimed for a particular service was completely implausible. With the evidence we pointed that out to the Solicitor for the subcontractor and before the matter progressed very far the matter was resolved by the subcontractor withdrawing the claim.

Further in our experience even if the Contractor fails to comply with their obligations under the Home Building Act they will make and be entitled to claim on a quantum meruit basis.

A quantum meruit claim by the Builder (who has failed to comply with the Home Building Act) is not for the benefit of the owner; the owner will usually be required to pay in those circumstances the reasonable value of the work.

Further if the claim is over $30,000 most often the owner will be ordered to pay the costs of the Builder (even though the Builder has not complied with the many of the sections of the Home Building Act). This seems inappropriate however one must prepare a case based on the likely outcome of the dispute. We can advise you in relation to methods of protecting claims by such Builders against owners.

We can advise you as to possible enquiries that can be made and to establish and prove (or disapprove) certain facts by technology which are not commonly utilised in home building matters.

If you are faced with a loss and you believe that it is appropriate to make a claim or you are faced with a claim made against you which you do not believe to be valid please contact Richard Watson or his Personal Assistant Shereen DaGloria to discuss your concerns and to obtain appropriate advice as to the best course of action to ensure a cost effective resolution.

This is only a preliminary view and is not to be taken as legal advice without first contacting Watson & Watson Solicitors on 02 9221 6011.

The NSW Civil and Administrative Tribunal (“NCAT”) has jurisdiction and functions as may be confirmed by the NSW Civil and Administrative Tribunal Act (the NCAT Act). The jurisdiction of NCAT is wide and varied. However one needs to find the authority for NCAT to deal with the matter in a particular Act.

It is not unusual for a Municipal or Local Council to stipulate conditions as part of its Consent to a Development Application, such as the Consent is deferred and does not start to operate until the Applicant has satisfied certain conditions.

The HIA standard form Building Contract for residential dwelling construction work contains a separate Deed of Guarantee. The Deed of Guarantee is often utilised in a situation where the property is owned by a company and the company is contracting with the Builder for the construction work. A director of the company may be expected to provide a guarantee on behalf of the owner company.

Usually (but not always) a Builder is required to provide a Home Building Compensation Fund Policy in relation to home building work.
Such a policy covers the home owner and others (as set out in the Home Building Act) in relation to various claims and in particular in relation to:
1. Cost of rectification of defective work; and
2. A contribution to costs to complete incomplete building works.

In New South Wales, there is a system for Contractors (and Sub-Contractors) in building projects to recover moneys owed to them “quickly”. This system has been put in place under the Building and Construction Industry Security of Payments Act (SOP Act). There are some exceptions in the SOP Act. This Act is a law of the NSW parliament.

This article relates to a situation that sometimes arises during a building project where one of the parties becomes insolvent. This insolvency may apply to a corporation or an individual and may apply to both the Builder and the Owner or principal in a project.

In NSW a person who enters into a House Building Contract with a Builder can in certain circumstances, sue that Builder if the house has building defects. In those circumstances, the Owner must bring the case within a certain time frame, which is the Limitation Period.

In New South Wales there is a system by which building professionals “check” that new residential buildings and major renovations have been built to the appropriate standards. This system of certification, which involves the issue of construction certificates and occupation certificates, was at one stage exclusively managed by local authorities.

The Opal Tower building at Australia Avenue at Sydney Olympic Park has recently been in the news. Various people noticed cracking in this multi-storey apartment building in January 2019. After investigation all of the residents left the building and after many weeks have not returned. It is not known when the extent and nature of the defects in the building will be ascertained and how and when the building will be repaired.

When a land owner wants to construct a building, the relevant planning authority will require the owner to have a plan to drain stormwater from the building and the surrounding land. The authority, (usually the local council), will generally insert that requirement into the Development Consent to ensure that the proper drainage of stormwater will become a condition to be complied with prior to the final approval or the construction of the building.

Under the NSW Home Building Act, a person who is a party to a residential building contract with a Builder has certain rights. Implied into such Building Contracts is the statutory warranties provided for under Section 18B of the Home Building Act. We have provided further information in relation to these warranties in our article dated 2 February 2018.

When a person in NSW wants to build a house, townhouse or block of apartments, that person must seek approval to undertake the building works from the local certifying authority. That certifying authority is generally the local council or municipal body. The person seeks this approval by lodging a Development Application with the local council or municipal body. In some circumstances the approval can be granted by a private certifier.

Watson & Watson have been involved in many issues where valuations of real estate were required to enable a party to receive “compensation” based on the valuation. In the past 18 month we have given advice and engaged valuers in relation to matters concerning the following issues.

The NSW Home Building Act, 1989 is a piece of legislation designed to protect Home Owners from defective building works. When parliament passed the legislation into law it recognised that Owners were at a disadvantage when dealing with Builders.

In August 2018 The Owners – Strata Plan 66375 v King the NSW Court of Appeal made findings and decisions in relation to the obligations of the Developer and the Builder under the statutory warranty regime under the Home Building Act.

Watson & Watson have been involved in many cases involving building and construction in particular residential building issues considered in various Courts and Tribunals including particularly at the New South Wales Civil and Administrative Tribunal (NCAT) or its predecessor Consumer Trader and Tenancy Tribunal (CTTT).

Expert witnesses are under obligations of independence and an overriding duty to the Court and Tribunals to present their opinion and evidence accurately and without bias. These duties are well documented in Court cases and also in Codes of Conducts for Experts in various Courts and Tribunals. Providing reports and giving opinion and evidence in accordance with the Code including impartially on matters relevant to the area of expertise of witness overrides the Experts duty to a particular party.

An Owner will either engage a qualified Builder to carry out the work or may obtain a Home Owners Building Permit. This article relates to matters other than work undertaken by the Home Owner directly and in particular with a Home Owner Building Permit.

Watson & Watson have been acting for owners, Builders and others in proceedings brought generally by Owners or subsequent Owners who may be entitled to bring a claim in numerous jurisdictions including the Civil and Administrative Tribunal (NCAT) which has jurisdiction for claims up to $500,000.00. Other claims in excess of that sum are commenced in the District Court of NSW or the Supreme Court of NSW, each of them have jurisdiction.

There are thousands of disputes relating to the quality of building works in particular concerning the construction of residential property including units, apartments, townhouses, duplexes, houses. The Home Building Act 1989 deals with obligations and rights of the parties including the Builder and Owner.

One would have thought that the rules relating to costs would be simple. Unfortunately they are not. Each commentary that we have reviewed has dealt with costs without consideration of the whole of the provisions relating to costs. Assumptions have been made which do not always apply.

Subject to a few exceptions there is legislation including the Workers Compensation Act 1987, the Payroll Tax Act 2008 and the Industrial Relations Act 1996 by which a Principal Contractor may withhold payment to a Sub-Contractor if the Sub-Contractor fails to provide a Sub-Contractor’s Statement, in effect a declaration that the Sub-Contractor has paid all its obligations under the Workers Compensation Act, Payroll Tax Act and Industrial Relations Act.

The Home Building Act 1989 relates to the carrying out of residential building work. Prior to the Home Building Act one needed to look at the express terms of the Contract to determine the obligations of the parties.

More often than one would expect we find that Builders and Owners who enter into Agreements for the construction of renovations or new homes do not have agreements which are enforceable particularly by the Builder against the Owner.

There are many “standard form Contracts” which are in existence including NSW Residential Building Contract for Homes issued by Home Industry Association (HIA), Master Builders Association (MBA) or Australian Building Industry Contracts (ABIC) to name a few.

Often we at Watson & Watson are approached by an Owner or a Builder, where the Owner claims that all moneys have been paid for the building works and that the Builder will not provide the Certificates required to enable the issue of an Occupation Certificate relating to work that has been undertaken at the home.

The Court of Appeal of the Supreme Court of New South Wales recently considered the obligations of a Claimant who had an Adjudication Determination in its favour for approximately $11 million in garnisheeing the Developer’s Bank Account.

In the Court of Appeal Decision Ku-Ring-Gai Council v Chan decided 7 September 2017. Ku-Ring-Gai Council as Certifier was held not liable to the Owner Builder or to the subsequent Purchasers. This was even though Council Inspectors inspected the works on several occasions and failed to identify defects or that the building was not in accordance with the approved plan. The Council issued an Occupation Certificate. The property has been occupied.

When two parties run a Court case and the Court makes a decision, generally the Court awards costs to the winner of the case. So if a Defendant wins its case, the Court will order that the plaintiff pay the legal costs of the defendant.

A recent High Court decision issued on 21 December 2016 has underlined the need for Builders and their lawyers to take care in conducting cases involving Security of Payments claims. That case was the decision of Southern Han Breakfast Point Pty Limited and Lewence Construction Pty Limited.

The Court of Appeal in New South Wales has recently considered an appeal on a case over the Security of Payments Scheme under the Building and Construction Industry Security of Payment Act 1999 (NSW) which could have greatly altered that scheme.

A recent decision of the NSW Supreme Court has confirmed it is vital that parties claiming for building defects obtain properly prepared Building Reports from appropriate and acceptable Experts to give evidence on your behalf in order to recover your losses.

A person who applies for a Building Licence in New South Wales can often find the process complicated. New South Wales law requires that a person who applies for a Building Licence should not only have sufficient education but also enough experience being supervised by a Builder. The rules in New South Wales set out the required building experience, which can involve working on building projects under the supervision of a registered Builder.

This e-Bulletin is to make builder members aware that on 1 September 2010 all building certification work undertaken by a council, must be undertaken by a council officer who is an accredited certifier under the Building Professional Board certifier accreditation scheme.

This paper will focus upon some practical issues that arise in relation to the use of an expert to make a determination. It is hoped that the matters which are identified will assist in avoiding pitfalls that may be overcome in drafting an agreement to submit a dispute that may arise under it for expert determination and also to identify the factors which circumscribe court action which might arise as a result of such a determination.

The Dividing Fences Act provides that adjoining owners of property are required to share equally the costs of a “sufficient dividing fence”, what is a “sufficient dividing fence” will depend upon all the circumstances of the case.